Positive Earnings Results from Mega-Cap Tech Spurs Optimism

The mega-cap technology companies of Alphabet (GOOGL), Microsoft (MSFT), and Texas Instruments (TXN) late Tuesday reported double-digit quarterly revenue growth and expressed optimism about the coming months. The positive earnings results have temporarily eased concerns about an economic slowdown and are giving the U.S equity market a boost today. 

Microsoft late Tuesday gave an upbeat sales forecast for the current fiscal year, easing concern that the strong dollar and a weakening economy would undercut sales.  Texas Instruments also provided a bullish forecast, indicating that sales and profit this quarter would likely beat consensus. In addition, Alphabet, the parent company of internet search giant Google, reported advertising revenue that exceeded consensus.

Concerns about an advertising slowdown had weighed on tech and internet stocks after Snap (SNAP) and Twitter (TWTR) slumped following their earnings reports last week.  However, Synovus Trust said Alphabet’s earnings report “was a sigh of relief as Alphabet was able to beat expectations in an environment where the overall ad spend rates are definitely slowing down.” 

The earnings reports of the three mega-cap tech giants show strength in the sector’s main revenue makers: digital advertising, cloud computing, information technology spending, and microchips.  However, it wasn’t all good news.  The recent surge in the dollar index to a 20-year high, which reduces the dollar value of foreign sales, is eroding revenue, especially at Microsoft.  Also, Texas Instruments saw weaker demand for chips in consumer products.

All three of the mega-cap tech companies have pointed to growth roadblocks in the coming months. Alphabet CEO Porat, in a conference call, used the term “ad pullback” to describe advertisers pulling back on spending. Nevertheless, the markets were relieved that Alphabet was able to beat advertising revenue expectations for Q2. It shows the market for search advertising is more resilient than that of ads on social media, insulating Alphabet’s business relative to competitors like Snap and Facebook. 

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